Dear George: Can mutual funds be purchased from banks as well as stockbrokers? And, if so, is there a difference between the funds?
, Jane, San Diego
Dear Jane: Mutual funds are sold these days at banks, brokerage firms, insurance agencies, accountant offices, and just about anywhere where money changes hands. And, if pending legislation is approved, the selling of all types of financial products will be available everywhere.
Banks cannot sell investments directly to their customers. The current arrangement allows banks to establish relationships with independent broker/dealers who are licensed to sell securities to the institutions customers.
Banks decided to get into the securities business back in the late 1970s when the securities industry decided to get into the banking business. Merrill Lynch was the first brokerage company to offer a cash management account that included unlimited check writing that was connected with a money market mutual fund. Of course, back then interest rates were running in the high teens and it was like having a checking account that paid 16 percent interest.
As bankers saw money flowing out their doors and into brokerage accounts they decided that turnabout was fair play. They made investment services available to their customers through independent brokerage firms.
There have been serious problems resulting from the sale of securities in bank lobbies. The biggest problem has been the assumption by customers that they are making investments that are insured by the Federal Deposit Insurance Corp. That protection is only afforded to deposit accounts and not stocks, bonds, mutual funds, or other investments.
Banks are now required to make full disclosure about the risks and expenses associated with investments made through bank offices. Bank advisors are required to have the same licenses and credentials as at a brokerage.
As far as investment options, just about every security you can purchase at a broker can be obtained from a bank’s broker/dealer partner.
Dear George: My investments have appreciated to the point that I think it is time to get some professional help. The only problem is I have no idea where to begin. Are there any resources to help me find some honest and ethical investment advice?
, Chris, Encinitas
Dear Chris: First of all, congratulations on the success of your investments. I have to wonder why you want to make changes or get advice when whatever you are doing now seems to be working very well.
In reality, most people need the help of a professional after they have been successful and not when they are just getting started. For one thing, most advisors don’t want to work with a customer who has a limited amount of capital to invest. And, quite honestly, you don’t need professional help.
Remember, investing is not brain surgery or rocket science. Just about anyone who wants to put in a modest amount of effort can find a mutual fund or two to meet their objectives. Then with a systematic approach, they can watch their nest egg grow.
Once the portfolio has grown to six figures and beyond there are a number of things that come into play that might be accomplished with the help of an advisor. Dealing with the tax consequences of investing and exploring more sophisticated types of investments can be best explored with professional advice.
Information on selecting a financial advisor is available through the National Association of Securities Dealers. Through their Web site (www.nasdr.com) you can get detailed information of how to find a planner and how to check out their credentials. You can also get the same information by calling (800) 289-9999.
Chamberlin is the host of “Money in the Morning,” heard weekdays from 9 a.m. to noon on Ksdo.com A/M 1130. Send your letters to him to P.O. Box 1969, Carlsbad, CA 92018, or E-mail him at (george@,moneyinthemorning.com).